Where Should You Place Your Stops?

While nobody knows for sure exactly where stops are located, Michael Seery, of SeeryFutures.com, explains why he believes identifying where stops generally exist is important, since placing a correct stop loss will improve your trading tremendously over the course of time.

Identifying where stops exist in the market is an important lesson to learn because placing a correct stop loss will improve your trading tremendously over the course of time. Nobody knows for sure where stops are located, however, I have learned a couple of things over my 20 year career and I have a general idea where stops are placed and why.

Buy stops are generally placed above the 10-day high as well as above contract highs as the bulls generally are buying more and the short selling are getting stopped out. Sell stops are usually placed at the 10-day low as well as below contract lows, which means the shorts are adding to their position and the longs are getting stopped out as they figure they are wrong.

The other common places to have stops are at certain moving averages such as the 20- or 100-day moving average where traders think either the trend is turning bullish or the market is starting to break down. Placing stops to close or not—at important price levels—can get very frustrating because the market can stop you out and then go the direction that you thought, leaving you behind and out of the market. Placing stops is one of the most important aspects of trading in my opinion.